Jittery days on world markets Tumbling stocks: With the Dow dropping below 8,000, the nation's investors wonder what's next.

September 01, 1998

THAT INVESTORS hate uncertainty is an old Wall Street chestnut. But events of the past few weeks bear out the axiom's truth.

Investors' loss of confidence was behind August's rapid decline in stock markets around the world. The precipitous drop in the past two days of trading shows people's fears are not just economic but political, too.

Underlying economic conditions have not changed in the past week. Asia's economy is struggling. Russia's economy is collapsing. Latin America's future is unclear. The U.S. economy continues to grow, producing record numbers of jobs with a barely noticeable rate of inflation. What has changed: people's perceptions about political stability at home and abroad.

President Clinton, beset by scandal, appears weakened to the point that some believe he may not finish his term. No one knows what will happen after independent counsel Kenneth Starr delivers his report to the House of Representatives. Uncertainty is likely to shadow the market for months.

Then there is the shaky future of Russian President Boris Yeltsin, whose government is collapsing faster than the Russian ruble.

Investors can also worry about Japanese Prime Minister Keizo Obuchi. Despite promises to implement a much-needed economic stimulus package that would roust the Japanese economy from its eight-year stupor, Mr. Obuchi has made very little progress.

While the precipitous fall in the Dow in the past four weeks from its all-time high of 9,337.97 to its close yesterday of 7,539.07 is troubling, the percentage decline is actually quite small. Indeed, in percentage terms, yesterday's 512.61-point decline represented a loss in shareholder value of 6.9 percent. Compare that with the Dow's 508-point drop on Oct. 19, 1987, representing a stunning loss in value of 22.6 percent. Within months of that 1987 drop, the market reversed course.

When third-quarter corporate earnings begin arriving in October, investors will have hard evidence on which to base their decisions. If profits continue to grow, as expected by many forecasters, investors will find reason to resume bidding up the prices of companies they are now discarding.

Pub Date: 9/01/98

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